State-owned China Huanqiu Constructing and Engineering Corp (HQCEC) yesterday became a wholly-owned subsidiary of China National Petroleum Corp (CNPC), the nation's largest oil and gas producer.

The merger, approved by the State Council and promoted by the State-owned Assets Supervision and Administration Commission (SASAC), marks a strategic step in the further restructuring of the country's State-owned assets and will in the long term cement the strengths of the two State-controlled industrial giants, said Shao Ning, vice-minister of SASAC at the ceremony yesterday in Beijing.

The move is also in line with the central government's blueprint of increasing the State-owned content of backbone industries that concern China's national security and economy, such as petroleum and gas, said Jiang Jiemin, vice-president of CNPC.

"The technical expertise and project management experience of HQCEC will help sharpen the competitiveness of CNPC's middle and downstream oil refining business," Jiang said.

The coming-together of the two State-owned enterprises is believed to greatly boost the oil giant's ambitious overseas expansion, according to Shao.

"It will gain CNPC favorable access to overseas oil and gas exploitation projects by guaranteeing their qualifications in constructing oil refining facilities," Shao told reporters on the sidelines of the ceremony.

HQCEC has worked closely with CNPC in the past, and has built a host of major oil and gas infrastructure projects for the country's largest oil producer in the domestic market, said Wang Shihong, HQCEC's president, adding that the merger would bring his firm more orders from CNPC's overseas projects.

"Priority will be given to HQCEC for CNPC's construction projects, and the group company will render full support to build HQCEC into one of the world's top 100 construction and engineering companies by 2010," said Jiang.

The construction company, which relies on the overseas market for 70 percent of its revenues, will remain unchanged in its legal entity, internal administration and business management after merging with CNPC, according to Wang.

Wang yesterday told reporters his company had been talking with CNPC about the deal for at least 10 years, and HQCEC, as part of CNPC now, expects tremendous opportunities for further growth based on the oil conglomerate's advantages in capitalization, corporate strength and market share around the globe.

"The rigid division between different industrial sectors of the previous planned economy in China was the major hurdle for the two sides in teaming up," said Wang.

SASAC's Shao said the country has been rigorously exploring new ways to restructure State-owned assets.

In restructuring State-owned enterprises between the central and local levels, Shao said, the country would likely adopt a shareholding system due to the differences in asset ownership.

State-owned HQCEC has built more than 1,200 large and medium-sized construction projects in China, and at least 40 projects in the overseas market. It has been selected by the US-based Engineering News Record as one of the world's top 225 engineering project builders for six consecutive years.

CNPC's sales revenue reached 570.7 billion yuan (US$69 billion) last year, which accounted for 10 percent of the total revenue of China's central level State-owned enterprises.

(China Daily June 15, 2005)